Wolf Richter on “This Week in Money,” by HoweStreet.com
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In college, in my personal finance class, my professor told the class never to buy anything on time – except your house.
Housing has highs and lows just like any market. The prof could’ve just said “buy low, sell high.”
The problem with housing as a trade is that you cannot sell after you see the market peaking because the buyers vanish — unless you cut your asking price to the level where the buyers are. The time to sell is when there is a roaring FOMO housing bull market – but that’s precisely when many people don’t want to sell because they want to profit from those price increases. That’s when you can get out of your house without trouble. Trying to sell into a downturn can be a nightmare, because the market becomes illiquid (as right now) and you’re just chasing the price lower.
People should buy a house because they want a home to live in and be happy in, a home that they can afford, and they should consider it an expense (shelter), not a money-making investment, and they should quit looking at Zillow every day and go on with their lives. This whole obsession with making money from your home is nuts.
Hear, hear!!!
Your house is NOT AN ATM. Its a place to live, which is one of the main reasons we all try to make money in the first place. And its a safe refuge, especially when a person gets older, especially when its PAID OFF. Who the heck wants to be at the mercy of a landlord or a lender when they’re 80 years old?
I bought 3 houses in 2022
of course I did 1031 with no debt on 25 unit class C mobile home park
glad I did
and if/when market for multi-unit returns
I can always sell houses(much easier) and move into units
“People should buy a house because they want a home to live in and be happy in, a home that they can afford, and they should consider it an expense (shelter), not a money-making investment,”
YES – and the rest of the post!
Wolf, thanks for all of your insights year round. Good health and happiness for the year ahead.
A few additional thoughts:
1. “…making money from your home is nuts.” This declarative is an ethical proposition – which also makes imminent sense when viewed from a risk perspective. Speculation has its place in markets. But there are other variables in the decision process. No argument here.
2. The omnipresent qualifier: in a context in which income and wealth distribution is wildly skewed (i.e., the US), the marginal value of the dollar drops at the top – so we are taught in econ 101 classes. Anecdotally, at least in my view, observable behavior indicates these people attach less significance to loss/gain and risk. Throw in ideology and “strutting”, and the decision-process becomes even more detached from risk (IMO).
There is more than one dimension to wealth effect! And, who is driving the market bus?
Anywho, just having fun. Irrelevant final thought – anyone with an elementary education in statistics and data management is amply armed to suspect, at least in the area of inferential statistics, that we are all being massively lied to and/or manipulated on a daily basis. The modeling, parameters, significance levels, opportunity costs, error tradeoffs, assumed distributions, blah, blah, are never, ever, presented for wider public consumption and deliberation.
phillip jeffreys,
Your #1… wait a minute. That’s NOT what I said. You took out the subject!!!
The subject in the sentence is “obsession”.
What I said was: “This whole obsession with making money from your home is nuts.”
What is nuts is the obsession, not the making-money part.
Making money from your home is great if it works out that way, what’s nuts is the obsession with making money on your home.
Wolf, you got that right! The real-estate obsession is probably worse in Australia than the USA if that is possible.
While people often say that nobody held a gun to your head to buy a home, most normal home buyers are trapped because housing is an essential commodity.
These speculative waves go on for years, how long can a family hold out with a hope that house prices will normalize in some reasonable time frame?
Since the Greenspan era, interest rates have been held down by the Fed with the clear intention of having people use their houses as ATMs and creating the “wealth effect”. Greenspan went so far as to encourage people to get variable rate mortgages hinting that rates will not go up, so people can buy higher-priced houses and continue to splurge and spend.
All this is by design and not with the interest of the common man in mind. If they had the interest of the average American, tax and other policies can be instituted to keep speculation in check.
However, both the Fed and the Government want to see the stock market and economy “going up, and up, and up” while they are in charge. They really don’t care very much if everything blows up down the road – that is the problem of the next Fed Chairman and the next administration.
In some ways, this is very similar to the short-term perspective of Wall Street and corporate management. It is really a sad state of affairs.
Wolf….not an intentional twist. Your point stands – and for me is more worrisome. Obsession implies compulsive even irrational behavior.
Perfectly said Wolf!!!!
Merry Christmas, Wolf.
I love your work.
Good insights.
+1
+1
Merry Christmas Wolf.
This is from FASB or some other stupid accounting entity that probably has no idea what they were pondering last month. I’m sure GAAP is highly irrelevant, but ya never know…
“Today, entities that hold crypto assets and do not follow specialized industry guidance in U.S. GAAP or certain regulatory guidance measure those assets at historical cost less impairment. In practise, crypto assets are impaired to the lowest observable fair value within a reporting period.”
Merry Christmas and impairment cheers
Many thanks for the many charts and solid objective information.
And Merry Christmas Wolf and gal.
Nice Christmas morning surprise.
Organizations like Coinbase, that lend or allow borrowing, may end up with interesting collateral complexities that may open the Pandora box of valuation gimmicks that are often explored as bubbles burst, e.g, goodwill impairments, recognition, subsidiaries with unexpected losses and a wide range of Enron-like accounting fun, which we’ll start to see, as FTX forensic bombshells explode next year. More than likely, a lot of NFT-linked noncash reserves and various poop coin treasures are going to be scattered all over the napalm scented (nude) beach.
Merry Christmas Wolf. Thankyou for your ideas.
dont see repos yet in NY NJ region… maybe its coming, makes sense that it would
Yes. What I said was that repos were at historic lows during the pandemic but are now heading back up to the prior record lows of 2019 — normalizing at low levels. It would take an employment crisis, such as in 2008-2010, to cause a real spike in repos. But I said we’re far from that.
Merry Christmas, everyone!
Merry Christmas
There is an ad on the local radio station here
“GIVE ME THE VIN.COM” to sell your vehicle
I got a new one for 2023.
“GIVE ME THE REPOSSESSION.COM
Clicking on the video starts it, for me, at about minute 41, but your interview actually starts around minute 32.
Yes, because the first part is all about EVs, and we just had all this hullabaloo about Tesla; and a few days ago, we had this hullaballoo about the new EV incentives and the prices of the Ford Lightning, etc., plus a gazillion comments, and so it seemed like this was enough, and I wanted to move on to the next thing.
But by all means, if you’re interested in it, rewind it 10 minutes and listen to it. I think it’s pretty good.
Here’s the future of crypto, a corporation holding “significant “ bitcoin, burning real cash and using non-GAAP accounting to inflate the fantasy that they have future value. Their 5 year share return is (-$78.11).
Cleanspark, crypto miner (CLSK) December 14, 2022
SEC balance sheet
“The Company has also excluded impairment losses on assets, including impairments of its bitcoin in its non-GAAP financial measures, which may continue to occur in future periods as a result of the Company’s continued holdings of significant amounts of bitcoin. “
I’m not a crypto expert and imagine that anyone who claims they are an expert, is a person that lives in a fantasy.
I recently have been looking at crypto related stories, especially after all the FTX drama. I fell into the Cleanspark rabbit hole yesterday, then staggered into a random tunnel, where I came across a Cleanspark conference call, where the topic of 96,000 rigs was being tossed around.
The crypto mining rig rabbit hole is a great place to shine my flashlight, because it brings up interesting questions about cash burn and capital deployment. Obviously, there’s apparently some comparative inference to oil rigs and dry holes, or rigs that are burning out of control.
I came across this bit:
“According to the latest data from Hashrate Index, the most efficient ASIC miners, those generating at least one terahash per 38 joules of energy, have seen their prices fall 86.82% from May. 7, 2021 peak of $119.25 per terahash down to $15.71 as of Dec. 25.
Miners in these category include Bitmain’s Antminer S19 and MicroBTC’s Whatsminer M30s.
The same statement holds true for the mid-tier machines, with prices now averaging out at $10.23 after falling a massive 89.36% from its peak price of $96.24 on May. 7, 2021.”
Beyond the Tower of Babel gibberish, what I’m seeing, is a huge oversupply of rigs and an increasing supply of devalued crypto, which are heading into a recession, that will amplify operation cost declines, while their customer base declines.
If rig prices drop, crypto drops a lot more and fewer investors are speculating, the crypto casinos and all their accounting impairments are exposed, that’s going to look like an industry wide bankruptcy, that ends up consolidating all those entities into a centralized pile of trash.
I think the biggest question as to what happens to the entire crypto con game, is related to how many suckers will remain in the game, after the implosion.
As a generational, once in a life time opportunity (to burn cash) will the speculators inside the burning casino remain at the slot machines or will their imaginative fantasies chase some other narrative?
Part of that dynamic processing will be financial, in terms of their income as it relates to cost of living expenses. If your crypto speculation is down 85% or if you’ve lost everything, how does that play out? Are these crypto worshippers buy and hold types, who have old fashioned discipline, who will cost average? Will these cutting edge investors maintain jobs to fund doubling down, making a stout stand to defend their losses, lack of due diligence, ignorance and gullibility?
Will they question their zombie like stupidity to transfer their savings to digital fantasylands, that had no accountability, oversight or risk control? I assume, these alcoholic brain dead morons, will pick themselves up from the gutter and they will return to the casinos (after saving real money).
FTX customers sending money to North Dimension likely wired it through Silvergate Bank, the San Diego institution that is one of the largest providing financial services to the crypto industry. North Dimension Inc. held two bank accounts at Silvergate, FTX bankruptcy documents show.
I can’t help it, but this is the future…
Argo Blockchain is suspending trading of its shares, with the Bitcoin miner indicating that it has a significant announcement on Wednesday.
Apparently, Argo is just among many dominoes that are having serious liquidity challenges. Anybody need a spare set of rigs, probably a great time to buy obsolete mining equipment. Once in a lifetime opportunity!
Argo Blockchain Plc, a UK-incorporated bitcoin miner, has had trading in its shares suspended by the Financial Conduct Authority. The company is planning to file for bankruptcy. [Twitter; Bloomberg]
Beating dead horses here, is a way to give examples of things that have risk. It’s not just crypto that has accounting irregularities, but, crypto represents an industry that sold itself as decentralized and better than the broken, corrupt Wall Street casino. However, it’s crystal clear that crypto structures are just new versions of the same old ponzu rug pull.
How many corporations are there that use subsidiaries as off balance sheet non liabilities? How many shareholders care or understand what’s going on with fraudsters like FTX or Enron — or more legitimate grocery chains — or anything being sold as a well run enterprise?
“Valuation of investments in subsidiaries and amounts due from group companies – Note 21
The Board considered amounts due from group companies and whether any further impairments were required on their carrying value. When considering these amounts they made use of forecasts of the profitability of the subsidiary and of their revenues and expenditure and concluded that impairment of those assets were unnecessary based on current forecasts and performance during the first part of 2022.
The forecasts to support this were built using our existing internal models showing positive cash contribution and profitability of the subsidiaries and their future value to the Group as a whole. Both pre and post year end these models continue to show that the contribution to the Group is at least the carrying value of these investments and as such no impairment has been recognised.”
One last thing, in the big picture, with the crypto casinos burning down, it’s critical to ponder the global implications of an industry that is built on inflating laundry tokens into a massive bubble, then using those inflated assets as collateral for multi layered loaning— and then using that leverage to print more laundry tokens.
I recall Mr Wolf doing a story about how crypto was actually fairly small in terms of global economic value, $2 trillion comes to mind — but what happens if we begin to see that a lot of unsecured loans within crypto are connected to leveraging assets elsewhere?
What if, cash burn starts eating away various portfolios that have been using crypto to yield higher returns, like crypto squared, which as a contagion, sets off cascading valuation concerns in places like pension funds and all those passive investment vehicles that are humming along so blissfully?
Granted, Argo is a tiny speck in an ocean, but how many BTC-backed loans are floating around?
The fresh $25 million BTC-backed loan will help Argo meet its cash flow requirements, and fund the expansion of its West Texas mining facility.
The new agreement will see Argo Blockchain roll up both its loans into one, for a combined sum of $45 million, with a maturity date of 29 October
Probably nobody cares about old threads, but this was so funny, have to post.
I was just looking around for btc-backed loans and came across this quote, while I was looking at collateral, LTV and all that unimportant loan stuff.
Obviously, anybody can get a loan for anything, but rest assured, your loan guru has your back.
“Renowned venture capitalist Tim Draper has confirmed his $250,000 Bitcoin price target on several occasions, including the interview linked above in which Tim Draper reaffirmed his expectation of quarter-million-dollar Bitcoin by the end of 2022 or the beginning of 2023.”
Although btc is below $17000 and falling, the future target of $250k might be for the entire value of all Bitcoin next year?
FYI
Galaxy (glxy) which is down 86% YTD and close to bankruptcy, bails out bankrupt Argo (arbk) which is down 95% YTD.
Laundry tokens blowing in the wind